Online auto classifieds bet on used car business to resuscitate sinking revenues

Ballooning losses at auto classifieds could be due to high marketing and advertising expenses like CarTrade and CarWale which together saw advertising and promotional expenses touch almost Rs. 161 crore.Supraja Srinivasan | ET Bureau | February 17, 2017, 10:40 IST

(Thinkstock Images)Major auto classifieds portals CarTrade, CarWale and CarDekho are betting big on used car business and financing of such cars as they expect this vertical to be their future growth engine even as they battle mounting losses. CarTrade, which also owns CarWale, and CarDekho, which also owns Gaadi.com and ZigWheels.com, both plan to go public by 2019-2020, senior company officials said.

"The new big business that we are focussing on is the financing for used cars in FY18," said Vinay Sanghi, CEO of CarTrade. The company launched auto finance as a service in October in partnership with banks and NBFCs to document and evaluate used cars to enable loans. "Auto finance will form 25% of our business by FY18," Sanghi said.

CarDekho is also busy building its used car business. "The new car business is our cash cow, where we are already profitable. But the growth engine for the future is used cars," said Amit Jain, cofounder at CarDekho. "I am investing in this business and I'm bleeding," he told ET.

The firm is also looking to build competencies in evaluation and financing for used cars.

Jain expects the used car business to grow almost 90% in the coming year even as the company gears up for an aggressive marketing campaign for the vertical despite rising losses.

Girnar Software, which owns and operates CarDekho and its subsidiaries, saw its losses swell more than three times year-on-year at Rs 144 crore in FY16. The company posted operational revenues of Rs 82.4 crore, 75% more than FY15.

MXC Solutions India, which operates CarTrade, posted consolidated operating revenues at Rs 32.27 crore for FY16 while CarWale, which was acquired by CarTrade in January 2016, posted revenues of Rs 35.6 crore.

One of the core reasons for ballooning losses at all these firms is high marketing and advertising expenses. CarDekho incurred advertising expenses to the tune of Rs 62 crore last fiscal year while CarTrade and CarWale together saw advertising and promotional expenses touch almost Rs 161 crore.

High advertising costs are hitting newer players too, some of them spending three times that of revenues. Droom spent Rs 20.6 crore for advertising and marketing alone even as the three-year-old company managed to clock merely Rs 4.7 crore in operational revenues in FY16.

CarDekho, which counts CapitalG (Google Capital), Hillhouse Capital, Tybourne and Sequoia India among its investors, will get into the market for one final round of funding before its IPO in 2020. The company has raised about $75 million so far.Jain said CarDekho will aim to close the round by second half of 2017. "We have been optimising costs over the last one year. We will raise money to market the offerings for the used cars business that we are building," he said.

Temasek-backed CarTrade had raised $55 million in its Series G round last week, taking the cumulative amount raised by the company so far to about $230 million.

Droom which has, till date, raised about $45 million from a host of investors, including VC firms Lightbox and Beenext, e-commerce operator Beenos, Japan's Digital Garage, Hong Kong-based investment company Integrated Asset Management and Axis Capital is also in talks with potential investors, for $30-50 million in its next round of funding, expected to close over the next few months.

CarTrade plans to use the proceeds from the funding round, to build offerings such as car servicing and auto financing in the used car vertical, and to keep the doors of inorganic growth in these areas open. The company is also looking to connect over 50,000 car service stations across the country on the platform.